National Minimum Wage and salary sacrifice programmes in the press for UK only

There have been a number of fairly high-profile cases where businesses have been named and shamed for failing to comply with National Minimum Wage (NMW) laws and regulations.

Previously, the most common reasons cited for these breaches have been failing to pay workers for travel between jobs, not paying overtime and deducting money from staff for the purchase of uniforms. 

However, it has been in the media that businesses have been accused of breaching NMW legislation through the use of salary-sacrifice programmes that has resulted in further concern about what businesses need to be doing to ensure they are remaining compliant with HMRC regulations.

Current Good practice

Under NMW regulations, an employer loan under a separate agreement is not included in the calculation for NMW purposes. The consequence of this is that any deductions to repay the amount of the loan do not reduce the NMW pay and therefore do not impact NMW regulations. It is very important that in order to be exempt from NMW pay calculations, there must be separate loan documentation and corresponding entries in pay records that show a genuine loan has been made and the employee has received the money (or the money has been paid to a relevant third party). Any arrangement that falls under this umbrella must be a genuine loan where the funds are provided to the employee to spend as they choose (even if they choose to pay the amount to a third party).

The Iceland and Middlesbrough Football club cases

The similarity between the Iceland and Middlesbrough issues is that in both cases, the employer took payments from employees for two different schemes (a season ticket payment scheme and Christmas savings scheme), but the employer was seen to have retained that money and that it was not used as a payment to the employee in the form of a loan as required for the payments not to be considered in NMW calculations (Middlesbrough have since won their case against the HMRC and Iceland are appealing their case).

Why this matters

Payroll Sacrifice schemes, such as SmartTech™, are essentially loan agreements with an employee (in which the money is paid directly to a third party) which are taken from net salary, these payments are not considered in NMW calculations so therefore do not impact NMW. Any employee that enters any of these schemes through Reward Gateway will have to enter a loan agreement with their employer.

Salary sacrifice schemes such as Childcare Vouchers (CCV) and Cycle to Work (CTW) are also loans to the employee, but because they are taken from gross salary, employers must ensure that these deductions do not reduce net earnings for any employee below the NMW level. SmartPay™ technology can ensure these calculations are automatically done for the employer, irrespective of how the employee is paid (hourly, weekly or monthly) removing all risk.